Their Man in Havana
Nobody knows the modern Cuban cigar business like Manuel Garcia, the commercial director of Habanos S.A., the global marketing and distribution company for Cuban cigars in Havana. The 50-year-old Cuban has been working with Habanos (formerly Cubatabaco) for nearly 20 years. Each year, he spends about 220 days crisscrossing the globe promoting the quality and uniqueness of Cuban cigars and visiting Habanos agents and merchants.
Habanos distributes Cuban smokes in more than 160 countries, not including the United States, of course-or at least not legally. The majority are sold through Habanos's 52 official distributors as well as its nearly 140 franchised cigar shops, Casa del Habanos. Estimates of annual sales of cigars from Cuba range from about 130 million to 150 million, which have remained in that range for the last six to seven years.
Garcia says that Habanos is not overly concerned with unit sales figures, but rather it is sales revenue that counts. He adds that last year's revenue was up about 11 percent. "That's impressive considering the problems in the global market such as the antismoking campaign," he says.
We met last June while I tried a Cuaba Piramide Edición Limitada 2008, one of three new Edición Limitadas that are coming to market this year. He was smoking a Cohiba Corona Especial, his favorite cigar.
The Edición Limitada range includes some of Habanos's most popular premium cigars, he says, as well as the recently launched regional-edition cigars that are made for specific markets. He said that next year a new factory in Havana will be opened that will produce only limited-production cigars, as well as special humidors. It will be in the former El Rey del Mundo factory, near the Romeo & Julieta factory. "It will need some new machinery, new things," he says. "The investment is approved, the investment is ongoing, and we expect that the factory will be working during the first part of 2009."
We sat in his offices in the neighborhood of Miramar for the better part of two hours and covered a lot of ground, from quality control in cigar factories to developing new markets to innovative packaging.
Garcia was born and raised in Havana. With a degree in foreign trade from Berlin University, he started his career working in Germany for Cubatabaco in 1989 before coming back to the main office in Havana in 1996.
His family has no direct ties to the cigar business, although he says that his father and uncle were always smoking cigars. "When I came to study in Havana, I stayed at the house of my uncle who took care of me as if he were my father," he says. "And he smokes four or five cigars every day, always. He still lives with me. He is 83 and still smokes."
But the topic I was really interested in was America, especially considering the evolving political and economic changes in Cuba and in the United States. Many Cuban cigars sold abroad already end up in the hands of Americans. I personally know that a significant percentage of Cuban cigars sold by top cigar merchants and airport shops around the world are purchased by Americans. I know cigar merchants in London, Paris, Madrid, Hamburg, Hong Kong, Tijuana, Cancún, even Auckland, whose sales of Cuban cigars to Americans range between 20 and 40 percent of their total sales each year.
This doesn't count all the "real" Cuban cigars that are bootlegged over the border from Mexico and Canada and sold to eager Americans for a premium price. It's pretty easy to score a Cuban smoke in major cities close to the border. Just look at my video blog from Los Angeles this past May.
I smoked a delicious Partagas Serie D No. 4 for $18-about the same price as London. I bought it in a cigar shop in West Hollywood. Granted, I think a lot of Cuban cigars that are smuggled and sold in the United States are fakes, but I believe that the real aficionado knows the difference, especially if he or she pays a premium for an illicit smoke.
If you think about it, we are talking about significant numbers of real Cuban cigars being smoked by Americans. If Americans accounted for only 10 percent of the world sales of Cuban cigars, then their business would add up to about 13 million to 15 million cigars. That number is realistic, and could be even higher.
What will happen to Cuban cigars when Americans can legally buy them? I asked Garcia. He answered on camera in a video for my blog in June.
"You know the market in the U.S. better than I do," he says. "It consumes about two times more premium cigars than the world market [for Cuban cigars], if you consider that we sell about 150 million premium cigars in the world each year. So if the U.S. market opens to us, it has huge potential. But I don't think that all the smokers are going to smoke Cubans. Some will change over, but others will keep with what they are smoking."
I then asked him how Cuba would cope with such a huge market just 90 miles away. Could his country increase production and still maintain quality to accommodate such demand?
"I think that Cuba both in the agriculture side and industrial side is preparing for that," he says reassuringly. "We have a reserve of tobacco and we now have the infrastructure to make the extra cigars. The land is available [in Pinar del Río], so we can increase plantings of tobacco. And we can increase production of cigars. We just need a little more time to organize it properly. We are getting ready for that. We don't know when, but we will be ready."
I mentioned to him that the last time Cuba tried to increase its production of cigars, it was a complete disaster. If you don't remember, quality went down significantly in 1999, 2000 and 2001 when the Cubans had a crazy goal to make and to export at least 200 million cigars, even 300 million. They ended up making hundreds of thousands of cigars that didn't draw. They abandoned the plan after three years, and refocused on making high-quality cigars.
"We learned a lot from that," admits Garcia, who adds in so many words that the decline in quality was not due to bad tobacco but poor rolling. Essentially, the factories didn't have enough experienced rollers to make all those extra cigars. It won't happen again, he says.
I believe him. A lot has changed in the last decade. Just 10 years ago, Cubans basically considered cigars to be just another commodity to export, like sugar, coffee or nickel. Today, they have a sophisticated view of cigars not only as a unique product of the island, but also as an important symbol for Cuba that is exported around the world. "As Fidel said, the Cuban cigar is the universal Cuban ambassador in the world for us," he says.
Garcia, and his colleagues at Habanos, often talks about Cuban cigars as a luxury product. It shouldn't be surprising that Cuban cigars seem to increase in price each year about 3 to 7 percent depending on the size.
"Regarding the prices, you know our product maybe better than anyone else," he explains. "You have had the opportunity to witness all the processes in the cigar manufacturing. They are almost 100 percent handmade. It's very expensive, beginning with the collection of the tobacco to everything else. This is a process of many steps, which is very expensive. Plus, you have to add the raising in the prices of raw materials such as oil, fertilizers for planting, cedar for the boxes, paper . . . everything is more expensive."
I think the partnership with Altadis, the European tobacco conglomerate, also helped the Cubans reevaluate what they were doing and refocus on quality and not quantity. It was only in 2000 that Altadis paid close to $500 million for a half share of Habanos. Regardless of the money, Altadis catapulted the Cubans into the twenty-first century with a modern marketing and distribution strategy. "The association with Altadis made us stronger," Garcia admits. "But it is a question of the product and the distribution. It was the know-how of Altadis, and it was also their financial power."
What will happen to Habanos now that the British tobacco giant Imperial Tobacco bought Altadis this year for $18.2 billion remains to be seen. Habanos is a tiny part of Imperial's business, which is primarily cigarette production and distribution. But my sources say that very little will change, and it's obvious that Imperial views the U.S. market as a potential revenue windfall for Cuban cigars.
"I don't think that we will have huge changes in the future now," Garcia says. "The future is a question of consolidating things as the leader of the premium cigar market and maintaining the quality of the product. We need better and better products because people smoke less but better."
Source: Cigar Aficionado